Markets are up for sixth week in a row. With major banks like GS, C, JPM and tech companies like GOOG and INTC results out and surprisingly all of them were pretty good considering scare in early March. Does this mean worst is behind us ? If stock market is leading indicator, it may be possible that worst is behind us. Obama, Bernanke and other govt officials have started talking about "green shoots". It's almost like seasons (which to some extent makes sense since markets are more driven by people behaviours than fundamentals:-):
Fall - markets had a free fall
Winter - markets were frozen
Spring - green shoots with mild recoveries
Summer - does that mean markets are going to "sizzle" in summer ?
If earnings are not one-off, it is possible that DOW would cross 9000 by summer 2009. By that time suspense of stress test results and health of banks would be over, we would have seen few more unemployment reports. If unemployment rate holds steady below 9%, that would signal recovery in sight and uptrend would continue.
Now pick of week:
Stock: PDS
Company: Precision Drilling Trust
Buy Price: $3.70-$4
Target price in 12 months: $6 (after quarterly dividends)
Company Information:
Precision Drilling Trust (the Trust or Precision) is engaged in land drilling in North America with drilling rigs operating in gas basin. The Company operates in two business segments: contract drilling services and completion and production services. Precision operated 374 land rigs, 229 service rigs and 100 camps along with catering, rental, snubbing and wastewater services.
Reasons for selection:
With economy recovery in sight, there would be more demand for energy. We have already started seeing oil prices hovering around $50 and would most likely go towards $70. PDS is second largest independent oil driller. The stock got punished due to its merger with Grey Wolf causing it to take on lot more debt and oil prices collapsing.
Company has suspended monthly distributions to preserve cash which is prudent move. When the merger is completely consumed and oil prices recover, this stock would easily go above $6 and would also resume distributions. Note that in 2008, it had distributions above $2. Even if it cuts down distributions to half, that would still be equivalent to 25% at $4. This stock would also provide a nice diversification from financials and REIT which have been my recent picks
Other stocks/ETF to keep an eye are: APL ($4), URE ($3.6)
Good luck and Have a good weekend !
/Shyam
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